Hyperion acquires Andromeda for up to $570m

The Clal Biotechnology subsidiary is in a Phase III clinical trial for a Type 1 diabetes treatment.

Clal Biotechnology Industries Ltd. (TASE: CBI) has sold subsidiary Andromeda Biotech Ltd. to Hyperion Therapeutics Inc. (Nasdaq: HPTX) for $20 million in cash and shares and up to $550 million in regulatory and commercial milestone payments. Andromeda's DiaPep277 is an immune intervention therapy for Type 1 (juvenile) diabetes. The drug is undergoing a Phase III clinical trial on adult patients, with results due in the first quarter of 2015.

At the closing, Hyperion will pay $12.5 million in cash and $7.85 million in shares. It will pay up to $120 million in global regulatory milestones, initially in the US or Europe; and up to $430 million in commercial milestones, the first of which is $450 million in global annual net sales; and contingent sales payments ranging from 10% on annual worldwide net sales up to $300 million to 17% for annual worldwide net sales that exceed $1.2 billion, with the exception of sales by distributors in certain territories, for which the rate is 25%.

"The acquisition of Andromeda Biotech is a transformative event for Hyperion," said Hyperion president and CEO Donald Santel. "We believe DiaPep277 has the potential to become a highly differentiated, first-in-class medicine for an orphan indication with a significant unmet need. With the successful commercialization of Ravicti well under way, DiaPep277 adds an attractive late-stage asset to our portfolio, while we continue development of glycerol phenylbutyrate for hepatic encephalopathy."

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Andromeda Biotech CEO Shlomo Dagan said, "If the second Phase 3 study is positive, DiaPep277 could play an important role in immune intervention of Type 1 diabetes, as patients who have even modest preservation of pancreatic beta cell activity could achieve better control of their blood sugar and a reduced risk of long-term diabetes complications."

Andromeda previously had a product development agreement for Diapep277 with Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA), but Teva terminated the partnership. In March, Clal Biotech bought back the rights in Andromeda from Teva in a deal that could reach $72 million. The less that Hyperion pays for Andromeda, the less Teva will receive. Clal Biotech will probably pay Teva a few million dollars when it closes the deal with Hyperion.

"We have not had very successful experiences in developing our products through big companies for which the product is just one of many," Clal Biotech CEO Ruben Krupik told "Globes". "First they say, 'You're waiting for the results of a clinical trial in October? Great, get back to us with the results.' Then, they are liable to invest less in product development. A company like Hyperion is big, rich, and experienced enough to bring the product to market and sell it, while being small enough for the product to greatly interest it."

As for the cash component of the deal, Krupik said, "We preferred to break up the income so that we'll have a bigger share in any success. It was especially important to us not to invest tens of millions of dollars now in financing Andromeda until approval of the drug. We faced a dilemma of absorbing another $40 million in value until we had the approval in hand, and possibly make a deal at a higher valuation, or sign now. I told myself that I didn’t want to risk so much of my money and all of Clal Biotech's portfolio, when I could avoid that and sign a deal, which in the event of success, still gives us a lot of future value. In the event of success, this deal is better than the original deal we signed with Teva. In the event of failure, it won't matter too much."